In June, the European Central Bank (ECB) diverged from the Fed, raising rates to the highest level in 22 years. The ECB announced a new rate increase of 25 basis points, taking its deposit facility rate to 3.5%. After the rate change, there was an immediate effect in GC Pooling, the ON rates for GC Pooling EXT Basket traded slightly above €STR while the GC Pooling ECB Basket traded slightly below €STR, writes Frank Gast, managing director and member of the Management Board at Eurex Repo, in an emailed commentary.
Another important market topic in June was the TLTRO III repayments, where the market was well prepared for the upcoming event.
June 2023 marked another month of strong volume developments at Eurex Repo for the GC Pooling and Repo markets. This resulted in another new overall record in total outstanding volume on 28 June. Looking at the year-on-year (yoy) comparison for the first half of 2023, Eurex Repo’s overall outstanding volume increased by 62.9%. When splitting the segments, the GC Pooling market increased by 89.6% and the Repo Market represented an increase of 50.4%.
Comparing June 2023 with June 2022, the outstanding volume increased by 71.9%. This was mainly driven by the GC Pooling Market, which increased by 120.4%.
Eurex Repo’s yoy average traded volume in 2023 compared to 2022 shows an impressive increase in GC Pooling of 316.6% and in the Repo Market of 30.8%. Comparing June 2023 to June 2022, the average traded volume increased overall by 88.4%. This was significantly driven by the GC Pooling market, with an increase of 297.8%, whereas the Repo Market increased by 15.1%.
In the Repo Market, the Specials term volume continued to be driven by rolls and new trades around netting dates and the new ECB terms from 21 June to 02 August. The main activity here was in Spanish and Italian government bonds. The traded volume of Bund Special Repo increased by 32 % from January to June compared to the same period last year. Due to lower GC activity, EU bond volumes declined from May’s record high. However, overall trading activity in EU bonds remains high, with the second-highest recorded monthly volume in June (YTD January – June +119%).
Floating rate repo transactions continued the recent upward trend in core and semi-core Euro government bonds.
In GC Pooling, spreads between the ECB and EXT ECB baskets tightened in June to an average of 5,4bp compared to an average spread of 10.5 in May.